PARIS (Reuters) — After dramatically
improving sales of its A320 jet by revamping it with newer and more
efficient engines, Europe's Airbus <AIR.PA> is studying whether to
apply the same formula to the larger A330, industry sources and
analysts said.

Sales of the 20-year-old A330 have enjoyed an unexpected boom in
recent years after three years of delays in Boeing's <BA.N>
radically new 787 Dreamliner drove many airlines to invest in the
cheaper and proven Airbus model.

But momentum is fading and analysts say Airbus faces questions over
whether it can maintain current A330 production rates in the second
half of the decade without something else to offer airlines trying
to contain their high fuel bills.

"They have been doing fine with the A330 because Boeing was late,
but it is becoming painfully obvious that Boeing has newer
technology than the A330," said Adam Pilarski, senior vice president
at U.S.-based aviation consultancy Avitas.

Officially, Airbus is happy with the way sales of its most popular
big jet are holding up, following a steady pattern of design tweaks
that have increased range and capability. Last month it sold 25
A330s worth $6 billion to AirAsiaX <AIRX.KL>.

But behind the scenes, suppliers and industry experts say Airbus is
looking seriously at whether to re-engine the A330 to cut fuel
consumption, something AirAsiaX is also pushing for.

"It is being discussed. It is one of the options in the mix," said
an industry source briefed on the plans.

Airbus said it had nothing to add to recent comments made by a
senior marketing executive, Crawford Hamilton, who told Air Insight
website there was no immediate pressure to revamp the A330. Airbus
holds its annual news conference on Monday.

The idea of a facelift for A330 is not new. Airbus originally
planned to compete with the 787 with such a maneuver but abandoned
it for a bolder and costlier carbon-fiber A350, which is due to
enter service this year.

Now, after a turbulent period of ambitious and challenging plane
developments, the world's largest aircraft manufacturers are once
again focusing on derivatives of existing models.

Since the A350 is on its way, a revamped A330 would now address a
smaller market niche.

Still, the decision could have an impact on the broader battle
between planemakers. Fresh competition from the A330 could, at least
for a while, sap margins for the 787 by forcing Boeing to offer
bigger discounts. For Airbus, it could provide profits that keep
open a lifeline of cash for other projects.

CONCERNS OVER RESOURCES

The proposal must first overcome concerns about scarce engineering
resources and satisfy Airbus bosses that it can generate an adequate
return without drawing away sales from the A350.

With execution risk uppermost in the minds of investors, Airbus is
heavily focused on testing and preparing the A350 for first
delivery, expected in the last quarter of this year.

At the same time, it needs to decide whether to add a bigger version
to the A350 series to compete with Boeing's new 406-seat 777X
mini-jumbo. The A350-1000 will seat 350 people.

Some industry experts said that on paper, Airbus could tackle a A330
re-engining project and a larger A350, informally nicknamed
A350-1100, at the same time as engineers start to come off other the
main A350-900 version.

But the business case would have to stack up first. After a decade
of costly developments and rollercoaster share prices, Airbus has
pledged to focus on doubling its margins by 2015.

Shares in parent EADS, recently renamed Airbus Group, have doubled
in the past year on the success of the re-engined A320 but the
wide-body market is fragmented and harder to navigate.

Analysts say an A330 engine upgrade would cost at least $1 billion,
much of which could be picked up by engine makers Rolls-Royce <RR.L>
or General Electric <GE.N>. Modifications needed to carry the latest
engines, which need more room and weigh more while using less fuel,
could treble the cost.

The industry source briefed on the situation said Airbus was not
expected to make a decision for at least a year.

That might leave time for Airbus to resolve yet another dilemma — what to do about the smallest member of the A350 family which lies
closest to the 250-300-seat A330. Airlines are steadily ditching the
A350-800 for the next-largest model.

But some analysts say Airbus cannot afford to wait.

"The most likely entry to service date (for a re-engined A330) would
be 2018, but for that they would need to make a decision pretty
soon," said Leeham Co analyst Scott Hamilton, who has blogged
actively about the A330 re-engining idea.

"A re-engining would give the A330 another 10 years of life but it
would accelerate the demise of the A350-800 which is likely to fall
away as customers upgrade," he said.